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The latest developments in the Credit Management world.


The duties of a Credit Risk Manager

Credit Risk Management

Credit risk refers to the probability of loss due to a borrower’s failure to make payments on any type of debt. Credit risk management, meanwhile, is the practice of mitigating those losses by understanding the adequacy of both a bank’s capital and loan loss reserves at any given time – a process that has long been a challenge for financial institutions. Let us look at the duties of a Credit Risk Manager

Risk managers advise organisations on any potential risks to the profitability or existence of the company. They identify and assess threats, put plans in place for if things go wrong and decide how to avoid, reduce or transfer risks.

Risk managers are responsible for managing the risk to the organisation, its employees, customers, reputation, assets and interests of stakeholders.

They may work in a variety of sectors and may specialise in a number of areas including:

  • enterprise risk;
  • corporate governance;
  • regulatory and operational risk;
  • business continuity;
  • information and security risk;
  • technology risk;
  • market and credit risk.

Herewith the list of duties of a Credit Risk Manager:

  • To establish and monitor policies and procedures that will help the company meet its sales and risk management goals.
  • Monitoring and evaluating active accounts to reduce or prevent bad debt losses.
  • Keep policies and procedures current, and communicate them to your subordinates and to other affected parties.
  • To listen to input from sales and sales management and then look for ways to help the sales department achieve its goals without damaging your department’s ability to manage risk and control payment delinquency to acceptable levels.
  • Control the costs to operate the credit and collection functions
  • Convincing senior management when opportunities present themselves to invest in technology that can help the credit department cut costs, accelerate the decision making process, and/or improve the quality and consistency of credit decisions being made
  • Review strategic credit positions
  • Assess Changes in Largest Exposures
  • Assess Counterparty Ratings
  • Review if  there are any pending credits to be cleared by the chief credit officer or board
  • Review if there are any credit limit excesses
  • Review Credit Limits
  • Assess if provisions are up to date
  • Review if concentrations are within stipulated limits
  • Assess if all credit exposures are covered and mapped
  • Check for wrong way positions
  • Report all significant risks
  • Ensure credit risk reports reach all relevant parties
  • Discuss significant credit risks if any with top management
  • Conduct stress and scenario testing and analysis of portfolio at global levels
  • Ensure no relevant scenarios are missed in testing
  • Review past or anticipated changes in provisions
  • Review if any changes need to be made in specific provisions
  • Ensure all transactions have full and proper documentation
  • Review rating triggers and break clauses
  • Ensure credit protection is fully understood and utilized
  • Explore if there are any further possibilities of exploiting credit protection
  • Establishing and communicating department goals and performance results to subordinates
  • To staff the department, train its employees and delegate work to meet senior management’s expectations and the market’s requirements
  • To actively support employee growth through training, performance reviews, mentoring and coaching
  • To meet corporate standards relating to managing subordinates, avoiding conflicts of interest, communicating with customers, and interacting with peers and superiors.
  • To praise subordinates in public, and reprimand them in private.
  • planning, designing and implementing an overall risk management process for the organisation;
  • risk assessment, which involves analysing risks as well as identifying, describing and estimating the risks affecting the business;
  • risk evaluation, which involves comparing estimated risks with criteria established by the organisation such as costs, legal requirements and environmental factors, and evaluating the organisation’s previous handling of risks;
  • establishing and quantifying the organisation’s ‘risk appetite’, i.e. the level of risk they are prepared to accept;
  • risk reporting in an appropriate way for different audiences, for example, to the board of directors so they understand the most significant risks, to business heads to ensure they are aware of risks relevant to their parts of the business and to individuals to understand their accountability for individual risks;
  • corporate governance involving external risk reporting to stakeholders;
  • carrying out processes such as purchasing insurance, implementing health and safety measures and making business continuity plans to limit risks and prepare for if things go wrong;
  • conducting audits of policy and compliance to standards, including liaison with internal and external auditors;
  • providing support, education and training to staff to build risk awareness within the organisation.

Some of the skills of an effective Credit Risk Manager:

  • technical acumen;
  • problem-solving and decision-making abilities;
  • analytical skills and a good eye for detail;
  • ability to cope under pressure;
  • planning and organisation skills;
  • negotiation skills and the ability to influence people;
  • good communication and presentation skills;
  • commercial awareness;
  • numerical skills and the ability to evaluate costs;
  • ability to understand broad business issues.

Challenges to Successful Credit Risk Management:

  • Inefficient data management. An inability to access the right data when it’s needed causes problematic delays.
  • No groupwide risk modeling framework. Without it, banks can’t generate complex, meaningful risk measures and get a big picture of groupwide risk.
  • Constant rework. Analysts can’t change model parameters easily, which results in too much duplication of effort and negatively affects a bank’s efficiency ratio.
  • Insufficient risk tools. Without a robust risk solution, banks can’t identify portfolio concentrations or re-grade portfolios often enough to effectively manage risk.
  • Cumbersome reporting. Manual, spreadsheet-based reporting processes overburden analysts and IT.
  • Unclear duties of a Credit Risk Manager. When a Manager is unsure of what is expected of him or her, especially on entering a new business industry.

Business rescue

Chapter 6 of the Companies Act 2008 (Act 71 of 2008) provides for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders. 

All businesses that are financially distressed and want to take a decision to start rescue proceedings can file a notice to start business rescue proceedings with the CIPC.

Business rescue can be initiated by:

  • The board of directors;
  • By an application to court when the business is financially distressed;
  • Various affected persons by application to court (including shareholders, creditors, registered trade unions and employees).

The decision by a board to pass a resolution for business rescue needs to be done urgently to enable the business rescue practitioner to take control for the purposes of having a business rescue plan approved and thereafter implemented.

A business rescue practitioner will be appointed to oversee and supervise on a temporary basis the management, affairs and business of the company and to devise, prepare, develop and implement a business rescue plan.  The plan will be implemented if approved by creditors and shareholders to the extent that the rights of the shareholders will be affected.

A director or a member would have a duty to pass a resolution for a company’s business rescue or alternatively resolve to wind up or liquidate as soon as he or she becomes knowingly aware that the company is either:

  • financially distressed or
  • is trading in insolvent circumstances (both factually in that its liabilities exceed its assets, and commercially in that it cannot pay its debts to creditors as and when they fall due

During the company’s business rescue proceedings, each director of the company:

  • would continue to exercise the functions of a director subject to the authority of the practitioner duly appointed
  • must assist the practitioner that is expected to operate the company and to continue to run its business
  • may delegate any power or function to the practitioner duly appointed that would have full management control of the company in substitution for its board and pre-existing management.

Important:  No liquidation proceedings must have commenced against the company when a decision is taken to start business rescue proceedings.

To file for business rescue, follow these steps:

1. Register as a Customer

To view information on how to register as a customer, click here.  If you are already registered as a customer, and know your customer code and password, proceed to step 2.

2. File for business rescue

The following supporting documents must be included in your e-mail:

  • Sworn statement with reasons for resolution set out in detail.
  • Indication of primary business activities, PI Score break down and total
  • Resolution by company (directors)
  • Practitioner Nomination letter by company
  • Acceptance letter of the nomination from Practitioner (A business rescue practitioner has to be licensed as a practitioner before he can be appointed.  See “Application for License as Business Rescue Practitioner”.
  • If the board decides not to adopt  a resolution commencing business rescue proceedings, after considering the financial state of the company, the notice of decision not be begin business rescue (CoR123.3) must be filed with CIPC by emailing it to businessrescue@cipc.co.za together with a statement of the criteria for being financially distressed and the reason for not adopting a business rescue resolution.
Service turnaround time:  2 working days of receipt of notice to start business rescue proceedings.

Click here to lodge an enquiry.

Important:  Queries relating to  transactions already lodged should only be submitted once the Service Turnaround Time has lapsed.

You can track the progress of your document by clicking on “Track my transactions” on the home page.  Click on  “Additional Services”, select “Customers” and then select “Document Status”. To check the tracking number, go to “Customer Transactions” under “Customers”.

File and Publish Notice of Appointment of Practitioner

Within five days after filing a resolution, the company must appoint a business rescue practitioner, conditionally licensed for the project.

Click here to view a list of Licensed Business Rescue Practitioners.

Once the nominated practitioner received a registration certificate, then the company applying for business rescue must print and complete form CoR 123.2.

  • The CoR123.2 must be accompanied by a consent letter of the practitioner accepting the appointment.

Scan and e-mail the completed and signed documents to businessrescue@cipc.co.za

  • The company must also inform all affected parties of the appointment.

File a status report with CIPC

The Practitioner must file a status report (CoR125.1) with CIPC after three months by e-mailing it tobusinessrescue@cipc.co.za. If business rescue proceedings are not concluded within 3 months, or within the time extension granted by court, the business rescue practitioner must file monthly report updates with the CIPC or to the court, in the case of a court-ordered business rescue process, until the proceedings are concluded.

File Notice of Substantial Implementation of business rescue plan or business rescue termination

Print and complete CoR125.2 (Notice of Termination of Business Rescue Proceedings)  or CoR125.3(Notice of Substantial Implementation of a Business Rescue Plan)

E-mail the completed form to businessrescue@cipc.co.za.


Liquidating or winding up your company

Business in liquidation

Liquidation and deregistration are not the same thing.

Liquidation

Liquidation implies that the business is not able to pay its debts.

Liquidation further implies that the business will cease to operate (generally as a result of financial problems).

The liquidation may come about:

  • as a result of a legal court process, or
  • by the creditors or
  • it may be voluntary liquidation i.e. applied for by members of the CC.

Voluntary Winding up of a company

Solvent company

A solvent company or close corporation may be wounded up voluntarily by members or by a creditor by the adoption of a Special resolution by the company or close corporation.  The resolution must be filed with the CIPC by filing the CoR40.1 with supporting documents.

Before the resolution is adopted by the company or close corporation, the company or close corporation must set security with the Master of the High Court for the payment of the company’s debts within no more than 12 months after the start of the winding-up of the company or close corporation or obtain consent of the Master to dispense with security.

For consent to dispense with security the following information must be provided to the Master:

  • A sworn statement by a director (if a company) or member (if a close corporation) authorised by the board of the company stating that the company or close corporation has no debts;  and
  • A certificate by the company’s or close corporation’s auditor, or a person who meets the requirements for the appointment of an auditor (if company does not have a auditor) stating that to the best of the auditor’s knowledge and belief and according to the financial records of the company or close corporation, the company or close corporation appears to have no debts.
  • Note:  It should be noted that the above requirements are determined by the Master itself and therefore, the above may not be correct.  Therefore, the above only serves as a guide as to what the Master may require.
  • A company or close corporation remains a juristic person and retains all of its powers as such while it is being winded up voluntarily.  From the beginning of the company close corporation’s winding-up, it must stop carrying on its business except for those activities required for the benefit of the winding up process.  Also all the powers of the company’s directors or close corporation’s members cease, except to the extent specifically authorised,
    • by the liquidator or shareholders in  a general meeting in the case of winding-up by company, or
    • by the liquidator or creditors in the case of winding-up by creditors.
  • A company or close corporation is dissolved as of the date its name is removed from the companies’ or close corporation register.  The removal of a company or close corporation’s name does not affect the liability of any former director or shareholder (for close corporation its members) or any other person in respect of any act or omission that took place before the close corporation was removed from the register.
  • At any time after a company or close corporation has been dissolved, the liquidator or other person with an interest may apply to a court for an order declaring the dissolution to have been void, or any other order that is just and equitable in the circumstances and if the court declares the dissolution to have been void, any proceedings may be taken against the company or close corporation as might have been taken if the company close corporation had not been dissolved.
  • Legal personality is only terminated once the entity is “dissolved”.

To voluntarily liquidate your solvent company, follow these steps:

  1. Register as a Customer

To view information on how to register as a customer, click here.  If you are already registered as a customer, and know your customer code and password, proceed to step 2.

2. Deposit funds

Deposit R250 into the CIPC bank account.  For the bank account details, click here.  Use your customer code as reference when depositing money into the CIPC bank account.

3. Apply for solvent liquidation of your company or close corporation

The following supporting documents must be included in your e-mail for winding up by the company or creditors:

    • Security – JM12 or consent to dispense with security – if winding up is by company or close corporation itself;
    • Original or certified copy of the written special resolution or minutes (accompanied by the agenda/notice) of the meeting at which the decision to wind-up was taken;
    • Originally certified ID copy of signatory (active director (company) or member (close corporation)/company secretary/representative)
    • Power of attorney – if representative
Service turnaround time:  10 working days from date of tracking.

Click here to lodge an enquiry.

Important:  Queries relating to  transactions already lodged should only be submitted once the Service Turnaround Time has lapsed.

You can track the progress of your document by clicking on “Track my transactions” on the home page.  Click on  “Additional Services”, select “Customers” and then select “Document Status”. To check the tracking number, go to “Customer Transactions” under “Customers”.

Insolvent company or close corporation

To voluntarily wind up your insolvent company or close corporation, follow these steps:

1. Register as a Customer

To view information on how to register as a customer, click here.  If you are already registered as a customer, and know your customer code and password, proceed to step 2.

2. Deposit funds

  • Deposit R80.00 (plus penalty of R150.00 if not lodged within a month after the meeting).  For the bank account details, click here.  Use your customer code as reference when depositing money into the CIPC bank account.

3. Apply for insolvent liquidation of your company or close corporation

Scan and e-mail the completed and signed documents together with supporting information toliquidations@cipc.co.za

  • The following supporting documents must be included in your e-mail:
    • CM25a or CM25 plus notice of the meeting;
    • Original or certified copy of the written special resolution or minutes (accompanied by the agenda/notice) of the meeting at which the decision to wind-up was taken;
    • Security – JM12 or consent to dispense with security – if winding up is by company
    • CM100 – Statement of Company AffairsOriginally certified ID copy of signatory on the CM 26 (active director/company secretary/representative)
    • Power of attorney – if representative
Service turnaround time: 10 working days from date of tracking.
Click here to lodge an enquiry.

Important:  Queries relating to  transactions already lodged should only be submitted once the Service Turnaround Time has lapsed.

You can track the progress of your document by clicking on “Track my transactions” on the home page.  Click on  “Additional Services”, select “Customers” and then select “Document Status”. To check the tracking number, go to “Customer Transactions” under “Customers”.

Liquidation or Winding up by Court Order or setting aside of liquidation proceedins or dissolution

To wind up a company close corporation by court order, follow these steps:

1. Register as a Customer  (preferable, but not compulsory)

To view information on how to register as a customer, click here.  If you are already registered as a customer, and know your customer code and password, proceed to step 2.

2. Wind up the company or close corporation by court order

E-mail the following to  liquidations@cipc.co.za

  • Letterhead of person submitting court order indicating contact details of person submitting it and customer code (preferable); and
  • Copy of court order.
Service turnaround time:  10 working days from date of tracking.
Click here to lodge an enquiry.

Important:  Queries relating to  transactions already lodged should only be submitted once the Service Turnaround Time has lapsed.

You can track the progress of your document by clicking on “Track my transactions” on the home page.  Click on  “Additional Services”, select “Customers” and then select “Document Status”. To check the tracking number, go to “Customer Transactions” under “Customers”.

Reasons why you should have a credit report done

We all know it is quite important to have credit reports compiled on potential clients, and even existing clients, as this minimises your future credit risk exposure.

Proper credit reports ensure a tight wallet!

Having credit reports done on a regular basis, will keep bad debt surprises down to a minimum, and so your cash flow will be much safer as well.

Here are a few more reasons why credit reports are so important:

  • Tough economic times – you should know the financial status of all your existing and potential clients, to see whether you can afford to extend credit to these companies.
  • The annual cost of credit reports, is much smaller than to have to write off debt of R 50 00.00 or so.
  • Protect your company’s interests, by knowing:
    • whether the Principal has property
    • was Surety signed, worth anything?
    • does the Principal have associated businesses?
    • what opinion does the trade references have of the applicant?
    • was there a recent change of ownership of the applicant?
    • any recent legal action against the applicant?
    • can you afford to raise an existing client’s credit limit, if the client requests it?
  • On the other hand, you can determine who your best paying clients are, and determine whether you want to offer them a higher credit limit, therefore increasing your profit potential.

Our clients rely on our credit reports because:

  • the info is fresh, as in on the day of the report
  • the info is verified, we confirm all information provided by the applicant
  • we obtain a bank code, directly from the applicant’s bankers
  • we contact the trade references provided, and so gauge the applicant’s payment history
  • each report comes with our recommendation, on whether you can extend credit to the applicant
  • this recommendation is based on the many years experience of our senior personnel

So, contact Kredcor now and let’s get the ball rolling.


What is prescription

What does prescription mean?
* The Prescription Act 68 of 1969 (“PA”) says it means a debt (for example payment of money) is extinguished after the lapse (passing) of a time period.
* South Africa had different laws which specify time periods, for example the PA says that contractual and delictual debts extinguish after 3 years from when prescription starts.
* Prescription may be delayed or interrupted.

What is prescription of debt?

What are the consequences of an extinguished debt?
* The debtor is not liable to the creditor for a debt after the time period has lapsed. (3 years)
* The creditor may not institute legal action against the debtor for a debt that prescribed.

When does prescription start?
* As soon as the debt is due (a debt is due once the creditor can identify the debtor and the facts from which the debt arises).
* If the debtor prevents the creditor from gaining knowledge of the debt (excluding debts arising from agreements) prescription runs from when the creditor has knowledge of the existence of the debt.

When will prescription be delayed?
* Creditor is a minor, insane, or under curatorship
* Debtor is outside the Republic of South Africa
* Creditor and the debtor are married to each other
* Creditor and the debtor are partners and the debt arose from a partnership agreement
* Debt is the object of a dispute in arbitration; or
* Executor of a deceased estate has not yet been appointed

When is prescription interrupted?
The running of prescription is interrupted by:
* Acknowledgement of liablity by the debtor; or
* A service of a process on the debtor, where the creditor claims payment for the debt (for example, Kredcors Letter of Demand or Summons)

Prescription time period:
Time period before a debt is extinguished     Description of debt to be extinguished
30 Years                                         * A debt secured by a mortgage bond
* A Judgement debt (given by courts)
* A debt for tax
* A debt owed to the state for profits relating to substances (such as mine minerals)
3 Years                                          * Contractual debts (Where debt/payment arises from an agreement between the debtor and creditor)
 * Delictual debts (Where a debt/payment arises from  damages caused by the debtor to the creditor)

 

How do you know if a debt has prescribed?

If, in the past three years, a debtor have not: made any payment towards settling a debt, acknowledged owing the money in any way or agreed to pay it in writing, or been summonsed in respect of it, the debt has prescribed.

The debt-collecting company or legal firm should close its file on the debtor.

The National Credit Act prohibits the listing of a prescribed debt.  

It follows, then, that it’s unethical for debt collectors to use the threat of “blacklisting” in making demands for payment.

KEY:

* EXTINGUISHED – The debt comes to an end

* IMPEDIMENT – A hindrance or obstruction

* DELAYED – Prescription is suspended/put on hold to a later date

* INTERRUPTED – Prescription is broken and can start afresh

Article by Marilè von Loggerenberg, Kredcor.